As of Friday, the State Bank of Pakistan have put Rs. 700 billion in the system of banks.
In order to cater growing demand of paper money, which the government as well as the banks are calling for, the central bank saw an asking of Rs. 847 billion in the start of this fiscal year. Initially, the government had all its focus on Pakistan Investment Bonds which to it was proving beneficial because of low interest rate. The banks store at least Rs. 3 trillion worth of PIBs in the banking system.
This low interest rate had a significant impact in the current and old fiscal years as the debt services of the government was seen to have reduced. As of 2015/16, the government did expenditure of 41 percent of the total tax revenues on interest whereas in the previous year, it spent almost half of the revenues.
The interest rate in the current fiscal year was low – a rate of 5.75 percent which saw grievances from banks to be getting low on profits.
State Bank of Pakistan floated the money at the rate of 5.81% making the amount reach Rs. 700 billion which was offered at a rate 6 paisa higher than the initial one. The bank also kept an auction for treasury bills for raising Rs. 289 billion on November 23rd, although the cut-off yield was seen to remain at 5.94 percent.
This shows that banks are profiting with the government at lower margin and at the same time not building up on loans to private part. And not just this, in a report given by SBP mentioned that credit for 130 days in the fiscal year still reach up to be negative at Rs. 21 billion.
The monetary expansion greatly owes to more borrowings by the government, which reached up at 1.49% – Rs. 190 billion in the year 2016-17 which for previous year was 0.46%.
Coming to the fiscal deficit, it was reported to be 1.3% of the gross domestic product which should go around 3.8% ideally for the complete fiscal year.
Whereas the final report revealed something different. SBP accepted that fiscal report saw a burden in interest due to fall in the interest payments and also because of sharp increase in the federal tax collection.